Posts Tagged ‘Economy’

NIRP says, central banks have run out of options & are now in their own end zone, heaving the final desperate Hail Mary pass that has no hope of saving them from total defeat. An economy that needs NIRP is sick unto death & doomed to an implosion of impaired debt, over-leveraged risk-on bets, asset bubbles generated by stock buybacks & central bank purchases of risky assets.

Prices have a fundamental role to play in the market. Prices are an indicator of the relative scarcity of a good with respect to its uses. What happens if prices are tampered with through price controls or other coercive government controls? The biggest problem is that disrupting the price system jams the price signal system.

The Fed, like central bankers elsewhere, (though slightly out of step as it recently hinted at possible future rate hikes) stays committed to a 2% inflation target as it continues a policy driven by a fear of deflation, a fear that is not supported by either good economic theory or economic history properly interpreted.

A strong dollar has a Jekyll and Hyde personality – a ‘good dollar’ that reflects economic & monetary policy divergence & whose rally is orderly and limited. A ‘bad dollar’ which de-couples from monetary policy & reflects instead a loss of investor in the face of higher volatility. That dollar rises faster, much further & is potentially devastating.

Not only are central bank policies having a disappointing effect on business sentiment and investment; they are failing even to revive inflation expectations. Despite having growing doubts as to central banks’ ability to create durable economic growth, we remain convinced as to their ability to push up risky asset prices.

The threat of a deflation, more than six years after the last recession, remains an imminent threat. It is not just a domestic issue, but a global one. The continued hope, of course, is that the next round of interventions will be the one that finally sparks the inflationary pressures needed to jump start the engine of economic recovery.

Nearly two-thirds of all Americans are completely & totally unprepared for the next economic crisis. That essentially means that 62% of the people in the U.S. do not have an emergency fund. Even after the extremely bitter financial lessons that millions of Americans learned during the last recession, most still choose to live on the edge.

What is overvalued and undervalued is a subjective judgment, and I tend to agree that gold shares are down 80% & they are cheap, compared to the physical price of gold & to Facebook or Google & these Netflix type of stocks. There is value in gold mining shares, and I think they could easily rebound from this level by 30 to 40%.

Since 1985, fiscal policy went on automatic pilot — where it has more or less languished ever since. – U.S. nominal GDP will be lucky to reach $24 trillion by 2024 or so. The math computes out to a public debt equal to 140% of GDP. For all practical purposes, it means an endless fiscal crisis lurks in the nation’s future.

The money illusion is a tendency of individuals to confuse real and nominal prices. The impact of money illusion is not limited to wages and prices. Central bankers use money illusion to transfer wealth from you — a saver and investor — to debtors. They do this when the economy isn’t growing because there’s too much debt.

Central bank activism, stimulating credit creation with artificially low interest rates, only works when people see little risk of default or rising rates. But that risk cannot be ignored forever. Rising rates come around sooner or later; often ferociously. When that happens, central banks lose their ability to coax stocks higher with lower rates.

While statistical economic data suggests that the economy is rapidly healing, it has only been so for a very small percentage of the players. For most American’s they have only watched the “rich” prosper as the Federal Reserve put Wall Street before Main Street. Moreover; global deflationary pressures have only begun to wash back on the domestic economy.

What possible use can an entrepreneur make out of information on GDP, Employment or Deficit, etc? In practice, so-called macroeconomic indicators are fictitious devices that are used by governments to justify intervention with businesses. These indicators can tell us very little about wealth formation in the economy or individuals’ well-being.

The remarkable run up of asset prices in the last few years is beginning to run out of steam. Once interest rates begin to rise — and rise they must, whether as a result of Fed policy or not — the end of the asset price inflation will be at hand. The result will be another financial crisis and accompanying recession.

Economic growth really is a panacea that improves standards of living for everyone in nearly every way. But instead of pursuing economic growth, the government wastes its time with piecemeal patches, trying to plug holes (symptoms) like unemployment, low wages, lack of education, etc, whose cause remains unabated.

Alan Greenspan listed 9 specific reasons why the “economy stinks”, although surprisingly, nowhere did he mention the fact that the current and future economic disaster is all a direct result of his “great moderation” ruinous reign at helm of the Fed and its catastrophic monetary policies.

The percentage of Americans that are either working or looking for work is the lowest in 36 years. There are over 100 million working age Americans that are not employed right now. If the percentage of people in the labor force continues to decline like it has been, what is that going to mean for the future of our society?

Printing presses set in motion an exchange of nothing for something. Note that a monetary pumping sets a platform for various non-productive or bubble activities — instead of wealth being used to fund the expansion of a wealth generating infrastructure, the monetary pumping channels wealth toward wealth squandering activities.

The Status Quo is desperate to mask the declining fortunes of those who earn income from work and so figured out how to game unemployment and inflation to the point that these metrics are meaningless. The Misery Index 2.0 strips away the phony facade of bogus unemployment and inflation numbers.

In an economy where activity is beginning to surge, the prices of commodities also pick up, as demand for these increases. Rising economic activity leads to demand for credit & so interest rates also increase. But this is hardly the case, which increases risk of disappointment in months ahead which could be negative for markets.